Dialect - Limited Company

Dialect - Limited Company

We at dialect have decided that we will become a limited company. This has plenty of advantages that are listed below.

Advantages of a Limited Company

Limited Liability – The obvious advantage of a Limited Liability Company is the financial security that comes with business. As already mentioned, the Company’s shareholders will only be liable for any debt the company accrues according to the levels of their own investment and no more. This can provide a comfortable feeling of security for investors in the Company.
Separate Entity – Due to its very nature, a limited company is deemed to be a separate legal entity from its owners. This has several advantages, including the fact that the company will exist beyond the life of its members. If they retire or die, the company will continue to exist and operate. This ensures security for employees and other members and also is an advantage which other legal forms of business are not subject to.

Taxation and Tax Advantages – Limited Companies are only taxed on their profits (usually at a rate of 21%) and as such are not subject to the higher (personal) tax rates placed on sole traders or partnerships which can reach 40%. There are ways to use the limited company form to benefit the members/directors and their interests. If you are forming and running a limited company, you are recommended to pay yourself at minimum wage levels. This allows you to take advantage of the fact that the personal allowance level is £6,475. So you are required to earn over this amount before you will pay income tax on it. When you consider that income tax rates are:

• 20 % on earnings up to £37,400 and;
• 40% on earnings over £37,400

Then you can see the advantage of paying yourself in dividends instead of in the form of a pay packet (in the normal sense), especially when you consider that tax on dividends is only 10% and there are no NI (national insurance) charges on them! There are complexities involved where you wish to pay a pension for your retirement, but if you consider that dividends can be paid at any time during the company’s financial year (as many times as you like) it actually makes this method of paying yourself (and other members) more preferable. It also gives you further incentive to work hard to make a profit with the company, as dividends payments are made up of distribution of the company’s profit.
Not Using a Company Car – Many people take pride in their company car. However, as the owner of a limited company, you are actually better off not purchasing and running a company car, but instead using your own personal car for business purposes. In this way you can charge the mileage accrued on business travel to the company which allows you to benefit from tax free fuel and the costs are actually tax deductible to the company, so you benefit in two ways.
Using Your House – Starting out as a small company, you may not be able to afford to lease or buy premises to run your business from. The good news is, you can run the business from your house and claim back for the cost of doing so. If you use 1 room in your home for business purposes then you have to calculate the cost of that room by working out the costs of the house in general (water, electricity, heating, council tax and rent or mortgage interest (not the mortgage payments themselves)) then dividing that number by all the rooms in the house to give you the amount you can claim back.
Ownership and Control – In the case of Private Limited Companies, the Directors are also usually the main shareholders of the Company. Thus both the ownership and control of the business remain in their hands. Decisions can be made quickly and easily, with little fuss, allowing for a more successful business management platform.

Company Name – Part of registering a Limited Company, includes the registration of a Company name. This name will help identify the business in the marketplace, separating it from other Companies and protecting it. If you are thinking of setting up a Limited Company, use our FREE Company Name Search tool to ensure your chosen business name is available, then register it for FREE! A Company name is protected from the registration date, yet a Limited Company is not legally required to begin trading on that date, so registration can be a good way to secure a name for future use.

Employee Shareholders – In some instances employees can purchase shares (or be granted shares via a company share scheme) and become shareholders of the company. This is good as it rewards the employee’s for their work, providing extra motivation beyond a mere salary. Not only will they have a vested interest in seeing the business succeed, but they will have a say in how it is run.